UBS reported Tuesday its U.S. wealth management advisors hit record-setting profitability in the fourth quarter, even as the unit’s profits slumped in the fourth quarter.
UBS reported a 15 percent decrease in profits in the fourth quarter for its U.S. wealth management business amid higher expenses and ongoing legal issues. But UBS Wealth Management Americas saw record-setting revenues and advisor productivity, reporting revenue per advisor reaching $1.09 million in the fourth quarter, up 1 percent from the $1.08 million reported in the third quarter, and up 5 percent from $1.04 million a year ago.
Wealth Management Americas also reported a record $147 million assets-per-advisor in the fourth quarter, up 3 percent from the previous quarter and an 8 percent increase from the $136 million reported a year prior. “Our FAs continue to be the most productive in the industry,” chief financial officer Tom Naratil boasted during an earnings webcast Tuesday.
The firm noted that while not all its peers break out all these numbers, by UBS’ calculations the firm ranks top among the wirehouses in revenue per advisor and invested assets per advisor.
Overall, the Swiss-based investment bank reported a healthy quarter, with profits of $1.04 billion, up from $991 million in the period a year earlier. For the full year of 2014, UBS reported profits rose 13 percent, to almost $3.9 billion. Operating income for the quarter was $7.3 billion, up from $6.8 billion a year earlier. But UBS reported an increase in operating expenses to $6.7 billion during the fourth quarter, up from $6.3 billion at the end of 2013.
“The results are strong, our capital is strong and we've completed our strategic transformation, preparing us well for the future,” CEO Sergio P. Ermotti said in a statement Tuesday. “While it's premature to draw a conclusion about the quarter, we've had a solid start to the year.”
UBS' global wealth management business also performed well, with Naratil saying it was its "best fourth quarter since 2008," and adding the global wealth management "delivered a high quality performance, with strong recurring income.” The division reported a pre-tax profit of $750 million, up from the $553 million reported a year prior. Additionally, UBS reported net new money of $3.2 billion, with the firm attributing it to clients in Asia Pacific and ultra high net worth clients globally.
Within the company’s Wealth Management Americas, UBS reported a pre-tax profit of $217 million, down 15 percent from the $254 million earned a year prior. Adjusted for restructuring charges and changes related to retiree benefit plans, the unit reported a pre-tax profit of $233 million, still down from the adjusted $267 million a year ago.
UBS attributed the decrease to higher compensation and lingering legal expenses, which increased by $43 million, or about 3 percent, for the quarter. Specifically, the wirehouse cited higher performance-based and variable compensation expenses paid to financial advisors. Additionally, recruitment-related compensation increased $4 million to $187 million for the fourth quarter.
As part of its quarterly report, the Swiss-based bank also reported that the U.S. Securities and Exchange Commission and U.S. Attorney’s Office for the Eastern District of New York had opened investigations into its wealth management business regarding the possible sale to U.S. clients of so-called “bearer bonds.” The sale of these has been largely prohibited in the U.S. under the Tax Equity and Fiscal Responsibility Act of 1982 because of their potential use in money laundering and tax evasion.
But the U.S. wealth unit’s fundamentals remain strong. UBS reported a record-setting $1.92 billion in revenue for the fourth quarter, up 4 percent from $1.85 billion earned at the end of 2013. Additionally, net new money increased to $5.5 billion, the highest in seven quarters and a 12 percent increase from the $4.9 billion reported in the third quarter. UBS reported the increase in net new money was driven main by experienced advisors, those with UBS longer than a year.
But while advisor productivity and assets per advisor were on the rise, the number of advisors with the firm decreased by 117 to 6,997. The firm said the decrease was mainly due to the attrition of lower-producing financial advisors, adding that in the fourth quarter more than two-thirds of the advisors who left UBS were in the lowest producing two quintiles or not ranked at all.
“This is consistent with our stated strategy of retaining and attracting the top producers in US wealth management, and keeping our advisor force in the 6,500-7,000 range,” a spokesperson for the firm said Tuesday, noting three-quarters of the experienced advisors UBS hired in in the fourth quarter were ranked in the top two quintiles.